Photo: Pe Tor
When you purchase a vehicle, you basically have 3 options: finance, lease or pay with cash. I don’t know about you, but I don’t have the patience to save that much cash. Plus you’d get higher return on that money by investing it compared to financing interest rates. So realistically that leaves you with financing or leasing.
In my case I learned about both sides of the financing vs leasing debate from my family…
My Leasing Grandpa
My late grandpa leased cars pretty much his whole life. Every few years he’d have a brand new car which at the time I thought was pretty sweet. I guess since he was a driving instructor he felt obligated to always have a new car to use during lessons. That and his slow driving must’ve kept the cars in pretty good shape helping him avoid any extra trade-in charges. Tax benefits probably also played a role in his thinking.
In reality though this route ensured that he always had a monthly car payment. There was never a point when he could stop making payments and actually call the car his own. Basically he was just renting a car his whole life.
Normally people would have the option to pay to actually buy the car once the lease runs out. The problem with that is that there is always a high amount owing. Then you’re back to square one of needing a big chunk of cash or some kind of financing. Usually the monthly leasing payment is very close to what financing payments would be, but with leasing they don’t credit that full amount towards buying the car at the end.
When you trade the vehicle in you have to pay more if you rack up a lot of mileage too. Since the car is never truly yours, you are pretty restricted in what kind of changes you can make to the vehicle. Also you’d likely have to pay higher insurance rates while financing.
My Financing Mom
I remember my mom telling me to never lease a car, explaining how much more expensive it is without the vehicle ever becoming yours. Besides the cheap cars she bought early on, she would always finance her cars. She recognized the value in eventually owning the vehicle and not having payments. Her monthly payments were actually going towards a possession that she could one day sell and recoup some of the money.
If she wanted to, she could’ve saved up cash to get a new vehicle, but sometimes you have to replace your vehicle before you had planned. With her Honda Civic she happened to hit a moose and was suddenly forced to get a new car. She also had better uses for that cash such as purchasing a business and saving for retirement. I’m sure she got a better return on her money with that route.
With the financing route you get the freedom of the car actually becoming yours. There are no restrictions on how far you can drive each year. You are free to install a new stereo or alarm system. You could even paint in a different color or trick it out like an episode of Pimp My Ride.
So regardless of whether you want to drive a BMW, Suzuki Grand Vitara or Dodge Grand Caravan, it is almost always a bad idea to lease instead of financing. Unless you are getting tax benefits from running a business, you are likely getting a lousy deal. Instead of leasing, take the time to shop around for a good financing deal with a low rate.